RESULTS OF INTERNATIONAL INVESTMENT FORUM IN TASHKENT (NOVEMBER 5-6, 2015)

Botschaft Usbekistan, November 25, 2015

International top managers and executives come together in Tashkent.

World practice shows that the amount of foreign investment in the real economy is seen as the best indicator of the business climate in any country, unlike various sorts of ratings and reviews of analytical institutions, which are largely biased. This is understandable: no entrepreneur would invest funds unless he or she is certain of their safety and return. The outcomes of the Tashkent International Investment Forum suggest many advantages, but above all, it highlights foreign investors’ trust in our country.

This leads to a reasonable question - why is trust above all? The answer is simple: the forum brought together the global business elite, or 560 foreign managers and executives of more than 300 foreign companies from 33 countries, representatives of major international financial institutions like Asian Development Bank, World Bank, and the International Finance Corporation among others. They signed 104 agreements and memorandums worth $12.4 billion. If one ponders over this amount, which was attained during the three-day forum, one would realize its impressiveness, because, for example, in the first nine months of 2015 Uzbekistan has drawn $2.4 billion in foreign investments and loans. The index clearly reflects the trust of the business in the business environment and the investment climate in Uzbekistan, so this leaves no place for doubt with regard to the professionalism of internationally recognized experts in the management of assets and businesses around the world.

The impressive economic growth of Uzbekistan and major structural reforms in the years since independence drew the attention of international organizations, large companies, banks, investment funds and agencies. An unprecedented program of privatization of state property and big investment projects launched this year have piqued the interest of the international business community and accelerated the entry of major players in the local market.

The Strategic Program on Further Reformation, Enhancement of Structural Transformations and Diversification of Economy for 2015-2019 is called to play a key role in the new stage of work with investors, as it is mainly focused on the construction of modern enterprises and manufacture of products with high added value on the basis of the richest resources of Uzbekistan, and introduction of new technologies of the global companies.

The development of private property and entrepreneurship, streamlining of the regulatory and business environment, expansion of the share and importance of the private sector in the economy, which has been turning into the main driving force of economic growth stand as the key points of the document.

Another important point for foreign investors is the reduction of the role and place of government in the economy, the development of joint-stock and corporate forms of property, and privatization of state companies. A large-scale privatization program, which envisages selling 1,247 state assets to the potential investors, has been in progress under these processes in Uzbekistan.

It is important to realize that its main goal is not just to sell assets to everyone, but rather to transfer the state share and facilities to skilled professional investors that are willing to introduce advanced technologies and modern methods of corporate governance in domestic enterprises, ensure the production of competitive marketable products, and promote them in foreign markets.

In the context of the escalating global economic crisis, few countries have been demonstrating sustainable economic growth. That is why the forum participants pointed out the unique model of economic development of Uzbekistan, as it ensures a stable and dynamic growth on the background of a complicated external economic situation, allows for an active investment policy and deep structural reforms, which have been effectively protecting the country from the recession challenging many developed countries.

In the next five years, the average annual GDP growth in Uzbekistan is expected to be at least 8%, industrial production - 9%, with an increase in the share of industry from 24% to 30%. The estimation was declared at the International Investment Forum. The figures are backed by specific calculations, projects and initiatives. For example, in the next few years it is planned to establish the manufacture of about 100 new product groups, including more than a thousand kinds of different products. The growth of export potential is estimated to increase by more than a half, or to $25 billion.

Launched this year, the large-scale privatization envisages that the government manages solely natural monopolies, which are considered as national property. The influx of foreign investments will eventually bring the share of industry in GDP to 40%.

The achievement and maintaining of macroeconomic stability, which primarily comes to the fundamental rates that are essential for ensuring stable and rapid economic development, is seen as a key pillar in the implementation of the economic strategy of Uzbekistan. Since 2003, the Uzbek government has not just borrowed funds from the Central Bank to support the state budget and balance of payments, but has also fully repaid the previous loans and domestic bonds held by legal entities and individuals.

Since 2014, the state internal debt in Uzbekistan has been equal to zero, suggesting a healthy monetary and fiscal system. As a result, the inflation has been at a manageable level, and has not exceeded 6-6.5% in recent years.

So today, Uzbekistan has an impressive investment capacity and is interesting for foreign investors. The availability of highly skilled human resources, professionally educated young people, rich raw material resources, developed industrial base, production infrastructure and favorable geographical location in the intersection of transport corridors in Europe and Asia suggests foreign companies to consider Uzbekistan as a beneficial country to invest in modern high-tech manufactures of competitive products.

Meanwhile, the country has long established itself as a reliable and solvent partner with an extensive system of privileges, preferences and guarantees for foreign companies that invest in its economy. Such a policy has paved the way to successful operation of more than 5,000 joint ventures, which have been established by investors from over 90 countries. Their number is likely to grow in the future, because $11.7 billion of the total number of contracts concluded at the forum will be focused on the implementation of new investment projects.

During the forum, President of Uzbekistan Islam Karimov held talks with several foreign delegations and international institutions. The state’s leader has received the World Bank Vice President for Europe and Central Asia Cyril Muller, and Vice President at International Finance Corporation Dimitris Tsitsiragos.

During the reception, the World Bank representatives spotlighted the importance of strategic programs on the follow-up reformation, structural transformation and diversification of the economy for 2015-2019, which have been approved by Uzbekistan in the current year and are aimed at continued enhancement of economic reforms and further modernization of industrial diversification, development of private property and private enterprise, as well as and decrease the role and place of the state in the economy. The guests noted the World Bank and IFC’s interest in active involvement in the processes of radical structural transformation of the Uzbek economy, and expressed their support for successful implementation of the programs adopted and joint investment projects in key sectors.

Uzbek President also held talks with First Deputy Minister of Industry, Trade and Natural Resources of the Republic of Korea Lee Hwang-sop.

As emphasized at the meeting, the participation of a representative South Korean delegation at the International Investment Forum in Tashkent demonstrated the further enhancement of the strategic partnership between the two countries, and commitment to the implementation of previously reached agreements.

The sides discussed the issues of participation of South Korean investors in the privatization of state enterprises and assets in Uzbekistan, and joint implementation of new investment projects in key industries and infrastructure.

The forum was traditionally a platform for establishing big contacts that would determine the development of the national economy for years to come. Uzbekistan Today reporters sorted out the most remarkable of them.

For example, a significant package of agreements has fallen on the domestic rail industry. The French company of Alstom and Uzbekistan Railways signed a memorandum of understanding on the establishment of the production of asynchronous traction engines in Uzbekistan. The document provides for joint efforts of the parties in exploring opportunities for the creation of such a manufacture at one of the enterprises of Uzbekistan.

The project should become a serious impetus for the Uzbek economy through the modernization of production facilities and creation of new jobs. Besides, it would strengthen the country's export capacity and enhance its role as a key transport hub in Central Asia and the Middle East.

It is envisaged that the new manufacture will produce engines for different types of rolling stock, including electric and diesel locomotives, as well as suburban and diesel trains. The engines will be operated by a technology that has not yet been introduced in CIS markets. That would allow reducing the cost of service, simplify the production cycle and increase the energy efficiency of rolling stock
“As a world’s leader in solutions for the transport sector, Alstom is ready to transfer the latest technologies to the Uzbek engineering industry, and considers the project as the first step in developing long-term partnership relations with Uzbekistan,” commented to UT the Alstom Senior Vice President for CIS Martin Vaujour.

Besides, the national railway carrier of Uzbekistan signed a contract for the purchase of two high-speed trains from a Spanish company Talgo. It is planned that they will run on the high-speed railway line Tashkent-Bukhara to be launched next September. Its construction is estimated at more than $400 million. It will reduce the time of passengers and cargo transportation by almost two hours, and cut operating costs by more than 30%.

Representatives of the two parties did not specify the cost and schedule of delivery of trains. However, as previously noted by the company’s First Deputy Chairman Davron Dehkanov, the trains will be manufactured in accordance with the requirements of the Uzbek side.

Today, the domestic railways are operated by four head and 18 passenger cars of the Spanish company of Talgo. Called in honor of the ancient city of Samarkand, high-speed trains Afrosiyob ply the route from Tashkent to Karshi.

The Finnish company Outotec is going to build a plant for the production of sulfuric acid for the domestic industry’s flagship Navoi Mining and Smelting Plant. The parties signed a corresponding memorandum in Tashkent. The establishment of a new plant is entailed by the need to further expand the NMSP capacity, and increase the production of non-ferrous metals.

The construction cost of the plant might exceed $130 million, $102.5 million of which is proposed by NMSP, and another $30 million – by the Fund for Reconstruction and Development of Uzbekistan.

This is not the first project of this kind by the Finnish company in Uzbekistan. In June 2015, it has launched a sulfuric acid plant for another giant - Almalyk Mining and Smelting Plant with the capacity of 500,000 tones of sulfuric acid. The project cost makes up $80.2 million. Outotec is also involved in the study on the development of the Tebinbulak titanomagnetite ore deposit in Karakalpakstan. It is planned to commission a mining and processing plant and a metallurgical complex for the production of pig iron there by the end of 2020.

A Turkish consortium of Dal Engineering Group is planning to build a new cement plant in Sherobod district of Surkhandarya region. A memorandum was signed with the Almalyk Mining and Smelting Plant.

The approximate cost of the new facility is estimated at $225 million, $90 million of which will be allocated by the Fund for Reconstruction and Development of Uzbekistan, $24.4 million - by Almalyk MSP, and about $110 million will be channeled by commercial banks as loans. After commissioning in 2018, the plant will produce up to 1.5 million tons of Portland cement annually.

This is not the first project of the Turkish side in Uzbekistan. One of the consortium’s members Dal Teknik Makina Tigaret Ve Sanayi A.S launched a cement plant in Zafarobod district of Jizzakh region in March 2014. The project’s total cost exceeded $114 million.

The second stage of the project is currently underway. It envisages increasing the capacity of the Portland cement production line from 760,000 to 1 million tons. The completion of technological expansion of the cement plant is scheduled for September 2016. The total cost of the second stage is $35.8 million.

In 2016-2020, Asian Development Bank and the World Bank are intending to implement projects totaling more than $12 billion jointly with the government of Uzbekistan. The preparation and approval of new strategies of five year cooperation with the leading international financial institutions is nearing its completion. To date, the portfolio of joint projects of Uzbekistan with ADB has made $13 billion, and $6 billion with the World Bank. They cover privatization, financial sector development, modernization of agriculture, power, infrastructure, health and education.

South Korean investors, the long-standing strategic partners of Uzbekistan, have demonstrated the highest activity in the forum. Companies from the Land of Morning Calm signed 24 agreements and memorandums on the purchase of state assets in the oil and gas, chemical, electrical, mechanical engineering, food, construction materials and infrastructure industries at a total of $220 million.

For instance, the South Korean Daewoo International Corporation is planning to buy a state's share of the two largest Uzbek exposition areas: Uzexpocentre National Exhibition Center and International Business Center. Another giant – Samsung - is intending to get involved in the construction of a pyrolysis plant on the basis of Ustyurt Gas Chemical Complex.

Another important project will be implemented with the participation of the German company of HeidelbergCement, the world's leader in cement industry, which has signed a memorandum of intent for the purchase of a stake in the leading Uzbek cement plant Kyzylkumcement.

“The document envisages the first stage of work on the acquisition of 35.9 percent of the company’s stake. This is a kind of action plan of the German and Uzbek sides for the near future. The further processing of purchasing a stake will be build thereupon,” said the HeidelbergCement CEO for Central Europe Andreas Kern.

Uzbekistan is seen as a very attractive market, said the source, as the most populous country in Central Asia with big and rapidly growing construction market. The vicinity of Afghanistan with the anticipated boost of construction works in the coming years ranks among the main export advantages.

Uzbek products might occupy a significant share of the market owing to the well-built logistics. For instance, a direct railway would significantly reduce transport costs, and hence the cost of cement, noted Andreas Kern.

The company’s strategy is simple - at the first stage it envisages staff training, and modernization and improvement of product quality in the future, if necessary. Introduction of energy efficient technologies in the production and use of alternative energy sources will rank among the priorities.

With regard to the prospects, Andreas Kern noticed that in the next five years the cement consumption per capita in Uzbekistan might reach 500-600 kg, while today it makes up 250 kg per year.

Such needs require the increase of capacity. However, according to Andreas Kern, the German company has not yet decided whether it wants to increase the production at Kyzylkumcement or build a plant in another region of the country.

“With our support, Kyzylkumcement promises to join the ranks of the most advanced cement plants in Central Asia in the next 15 years,” he emphasized.

The government came up with an interesting statement. According to First Deputy Prime Minister of Uzbekistan Rustam Azimov, it is planned to reduce the tax burden on the economy from 20 to 19% next year, as part of the two-decade policy, which has reduced the tax burden on the economy from 45 to 20%, thus releasing funds of enterprises and investing them in the upgrade, creation of new capacities, and increase of real incomes of the population.

Over the last decade, Uzbekistan has managed to minimize its gross external debt and increase the volume of foreign exchange reserves to the level that can cover more than 24 months of imports.

According to the First Deputy Prime Minister, that was achieved through a very balanced and cautious policy of external borrowings, based on three principles.

“Firstly, Uzbekistan will never take loans for consumer purposes, that is, their consumption. Secondly, the country will not borrow money, unless it is sure that it can return them on time and in full amount. And thirdly, foreign borrowings are channeled solely for investment purposes, implementation of strategic projects in the real economy, as well as for the development of basic, industrial and social infrastructure,” said Rustam Azimov.

Most importantly, he believes that all the loans disbursed, excluding loans for education and health, generate cash income by themselves to repay their commitments.

As a result, Uzbekistan has been maintaining a triple surplus for many years, including a surplus of the national budget, the current account and payment balance, which was actually converted into the formation of the Fund for Reconstruction and Development.

With the Support of Partners
Juan Miranda, Director General, Asian Development Bank:
Uzbekistan has a range of advantages for foreign investors. I would like to note the development of the transport infrastructure, which, coupled with a strategic location in the heart of Central Asia, makes it a major player in the transit of goods from Europe to Asia.

It is vital to develop international corridors. For instance, Uzbekistan, Turkmenistan, Afghanistan and Iran need to unite efforts and continue the construction of the railway with access to the Iranian port of Bandar Abbas. That would allow the Uzbek goods and manufacturers from other Central Asian countries delivering their products directly to other parts of the world where there is a demand for them.

The current situation suggests that Uzbekistan, Afghanistan, Turkmenistan and Iran need to start working in this direction as soon as possible. Access to the coast of Iran would be very advantageous for Central Asian states, therefore, there is a need to continue this work with the support of international financial institutions like the Asian Development Bank.

Progressive Development

Cyril Muller, World Bank Vice-President for Europe and Central Asia:
We strive to work together with the government of Uzbekistan and carry out a range of projects on the establishment of new jobs and improvement of people’s welfare. Your country has made a considerable progress in the development of economy and industry over the last decade, as proved by numerous examples like sustainable dynamics of GDP growth, diversified economy, developed real sector and services.

Uzbekistan has set a goal to support and multiply its progress in challenging economic conditions of global instability. The country's population is dominated by young people, who are capable to implement the strategic mission.

Uzbekistan might make a significant leap forward through the development of private property and small business, investment in the modernization of the industry, implementation of big infrastructure projects, and advancing the level of staff training.

The financial sector also requires intent attention. The leading international rating agencies predict stability for the banking sector in Uzbekistan in the foreseeable future. Unlike Uzbekistan, many CIS countries have worsened their position in the ratings agencies this year.

Vast Opportunities

Prakash Kejrival, Managing Director of Indorama Group (Singapore):
Uzbekistan has a great development capacity in all sectors of the economy owing to its attractive investment environment for foreign businessmen. Favorable investment and business climate has been contributing in the increase of investments, including foreign ones. This helps to speed up modernization, technical and technological extension of existing and opening of new modern enterprises that successfully compete with foreign producers.

Uzbek cotton fiber enjoys a great demand in the global market, meeting the highest standards. It paves the way to intensive development of textile and light industry.

Using the opportunities available, we established the Uzbek-Singapore joint venture Indorama Kokand Textile. With the project cost of $55 million, the enterprise is equipped with high performance automated textile machines by Swiss Luwa and Rieter, Japanese Toyota and Muratta. The map of exports has been expanding year by year: nearly 90% of production is exported. In this regard, we are planning a range of promising projects on expansion.